“Chicago needs to tackle these difficult fiscal issues now rather than push them off into the future,” Reilly said after the vote.

“And I don’t believe we were given the level of detail we need to provide the administration with that kind of borrowing authority.”

Waguespack said his specific questions about how and when the money would be spent were answered with a list of pinstripe patronage tied to the two massive borrowings.

“We do have a piling up debt problem. But we also have a spending problem. You can’t separate the two. We have to start looking at these big projects and saying, `Maybe, we have to scale back a little bit,’ ” the alderman said.

The $900 million in general obligation debt backed by property taxes and $1 billion in bonds for Midway Airport put Mayor Rahm Emanuel on the defensive.

He was asked about taking Chicago down the same road that led Detroit into bankruptcy.

He was forced to explain why he’s continuing the borrowing binge — and doubling to $1 billion a “commercial paper” program used to tide the city over between bond issues — when Chicago’s disturbing level of debt has already contributed to a triple-drop in the city’s bond rating.

Standard & Poor’s has reaffirmed Chicago’s A-plus general obligation bond rating with a “negative outlook,” citing the city’s looming pension crisis, its “political unwillingness to raise property taxes” and its “limited capacity to cut spending” because 63 percent of it is tied to public safety.

In 2015, the city is required by state law to make a $600 million contribution to stabilize police and fire pension funds that now have assets to cover just 30.5 percent and 25 percent of their respective liabilities.

Mayor Rahm Emanuel wants the Illinois General Assembly to put off the balloon payment until 2023. That would give the city time to negotiate a painful mix of employee concessions and increased revenues without raising property taxes so high that it triggers an exodus to the suburbs.

In its new report this week, Standard & Poor’s noted that decisions about how to fund the $600 million payment must be made later this year “if the revenues are to be realized in time” to meet the state deadline.

National media, opinion-makers and some financial analysts have taken to comparing cash-strapped Chicago to bankrupt Detroit, but a major bond-rating agency says that comparison may not be apt.

Yes, Chicago faces ominous financial woes, particularly when it comes to its government worker pension debt, but the city has the wherewithal to weather the financial storm that Detroit could not, according Standard & Poor's Ratings Services report to be released Thursday.

.....
Credit analyst Jane Ridley, the report's lead author, said the decision was made to compare the cities after Detroit declared bankruptcy last summer and the comparison between the two former manufacturing powerhouses with high levels of debt and unfunded pension obligations became common.

"We saw ... a comparison people were making (but) our criteria made it look starkly different," Ridley said. "People wanted to draw comparisons, where we didn't necessarily think there were comparisons that made sense from a credit standpoint."

.....
Chicago also set more money aside for financial rainy days, has more cash on hand and has a far greater ability to meet its debt obligations despite a reluctance to increase taxes.

Both cities, however, are considered "very weak" when it comes to budgetary performance because in recent years each has spent beyond its means. That has lessened in recent years since Mayor Rahm Emanuel took office, but the problem persists, according to the report.

Chicago and Detroit also are "very weak" when it comes to debts, both for money borrowed to operate the cities and unfunded pension liabilities — the amount of money needed to bring pension funds up to adequate funding.

The agency announced Tuesday it’s lowering the rating on $8.3 billion in debt from A3 to Baa1, putting it only three notches above junk-bond status.

Moody’s gave Chicago a negative outlook indicating another downgrade could occur if there’s no pension fix. Moody’s says the rating “reflects the city’s massive and growing unfunded pension liabilities.”
Moody’s says those liabilities “threaten the city’s fiscal solvency” unless major revenue and other budgetary adjustments are adopted soon and are sustained for years to come.
The lower rating means the city will have to pay high interest rates.

Moody’s says a commitment to increasing tax revenue is one thing that could raise the rating. Chicago now has the worst credit rating of any major city except Detroit.

Moody’s action should not come as a surprise. The rating agency has been diligent in measuring the impact of rising pension debt on a government’s ability to repay its debt.

Just recently the agency reported Illinois’ state pension debt at $187 billion, nearly double the state’s official estimate of $97 billion. Moody’s takes a more conservative and prudent approach than the state in its actuarial assumptions.

Unfortunately, the city of Chicago’s pension debt is just one part of the crisis facing Chicago taxpayers. The Chicago Public Schools’ operating shortfall and its pension debt are just as disconcerting. Add to that debt of the Chicago Transit Authority, the Chicago Park District and the share of Cook County debt that Chicago taxpayers are on the hook for, and the numbers are alarming.

A recent Institute report put the debt of Chicago taxpayers at more than $61,000 per household. And when Moody’s more conservative approach to pensions is included, that number jumps to $84,000 per household.

Chicago and its sister government will never be able repay the amount of debt and pension obligations currently on their books. Never. And they can’t tax their way out of this problem because people will just flee. People have already been going to the collar counties and Lake County, Ind., for years.

The lower rating means the city will have to pay a somewhat higher interest rate to attract investors.

In addition, any further downgrades below Baa1 could be considered a default for 17 of the 19 interest rate swap contracts the city has entered into over the years. Under current market conditions, that could cost the city $139 million if the rating drops further to Baa2, plus another $33 million if it drops again to Baa3, according to Moody's.

"Moody's changed their model, which provides a higher weighting to unfunded pension liability," said Richard Ciccarone, president and CEO of Merritt Research Services, a bond market research firm in Chicago. "When you look at Chicago's numbers, that's the elephant in the room."
.....
HIGHER TAXES?
Moody's makes it clear that higher taxes are needed to solve the problem. "Unwillingness to utilize the city's full taxing authority," Moody's said, "is a clear credit negative. Moody's estimates that full funding of the fiscal 2012 ARC (actuarially required contribution) would have required a near doubling of the city's property tax rate. As the city's own property tax rate comprises only 20 percent of the total rate levied within its boundaries, we believe that a doubling of city taxes may be absorbed by the tax base without placing too much negative pressure on the local economy."

"While we disagree with the action taken today by Moody's, we do agree that the city's pension challenges will have a direct impact on its long-term financial stability without reform," said Lois Scott, the city's chief financial officer, in a statement. "As noted by other rating agencies as recently as last week — and by Moody's in a previous report — Chicago's economy is strong and growing, and the investments in our city since Mayor Emanuel took office point toward a bright future for Chicago. But make no mistake, meaningful pension reform is critical to securing that future."

The downgrade is likely to spill over to the Chicago Board of Education, which is facing a required $696 million pension contribution this year, more than triple last year's payment.

Last July, after Moody's reduced the city's credit rating, the company also cut the Board of Education's rating one notch, to A3, from A2.

HIGHER TAXES?
Moody's makes it clear that higher taxes are needed to solve the problem. "Unwillingness to utilize the city's full taxing authority," Moody's said, "is a clear credit negative. Moody's estimates that full funding of the fiscal 2012 ARC (actuarially required contribution) would have required a near doubling of the city's property tax rate. As the city's own property tax rate comprises only 20 percent of the total rate levied within its boundaries, we believe that a doubling of city taxes may be absorbed by the tax base without placing too much negative pressure on the local economy."

This seems to assume that people (and businesses) will simply accept tax increases and do nothing as a result (except perhaps spend less since, after paying their taxes, they'll be left with less cash in their pockets).

But people do react - they move outside of the city limits. Businesses do the same. that reduces the tax base so rates have to be increased even more. [And, of course it has a knock on effect on the city's economy since people are spending more of their money where they now live - outside of the city.]

Of course those increased taxes mean even more people move so the tax base ...

__________________Anyone who cannot cope with mathematics is not fully human. At best he is a tolerable subhuman who has learned to wear shoes, bathe, and not make messes in the house.

CHICAGO, March 3 (Reuters) - Illinois and its biggest city, Chicago, will head to the supply-starved U.S. municipal bond market this month to sell more than $800 million of debt.

The state has set a $402 million competitive sale of taxable Build Illinois sales tax revenue bonds for March 11, according to the deal's preliminary official statement.

Chicago will sell $405 million of general obligation bonds through Wells Fargo Securities next week, a market source familiar with the deal said.

Sizable deals have been scarce, with issuance by states, cities, schools and others in the first two months of 2014 totaling just $32.4 billion, down 35 percent from the same period in 2013. February issuance was the lowest for that month in 14 years.

Unlike Illinois' GO bonds, which carry the lowest ratings among all 50 states, the Build Illinois bonds, which are secured by state sales tax revenue, are rated higher, fetching ratings of AAA and AA-plus for a deal last year. Proceeds from the deal will continue funding for a state capital improvement program.